High-End Securities Regulation: Reflections on the SEC's 2022-23 Private Funds Rulemaking

82 Pages Posted: 6 Nov 2023 Last revised: 21 Mar 2024

See all articles by William W. Clayton

William W. Clayton

Brigham Young University - J. Reuben Clark Law School

Date Written: February 7, 2024


For most of its history, the SEC has taken a hands-off approach to private markets. Instead of direct regulation, the SEC has relied primarily on investor access restrictions to create high-end contracting environments where investors (in theory) have the resources needed to fend for themselves. But in early 2022, this hands-off philosophy was turned on its head. In response to booming growth and concerns about harms to public pension plans and other institutional investors, the SEC proposed a sweeping set of regulatory interventions in the private fund industry, a vast and important part of the private market ecosystem with over $25 trillion in assets under management. At the conclusion of a long and contentious comment period, the agency released a set of final rules requiring fund managers to provide detailed, standardized quarterly disclosures to investors and regulating preferential treatment, among other things.

In this Article, I argue that efforts to intervene in private securities markets for investor protection purposes should pay special attention to a basic question: What are the causes of bargaining inefficiency? What, in other words, is stopping well-resourced industry participants from structuring their affairs effectively? To help enhance the policy dialogue on private funds, this Article presents the first study asking institutional investors to identify the issues that they think cause private ordering in private equity funds to fall short of optimality, discusses the many uncertainties that remain, and considers the implications.

This Article offers two recommendations for regulatory policy in this new territory for private securities markets. First, it sets forth a basic framework encouraging policymakers to take into account what is (and is not) known about the causes of bargaining inefficiency when deciding how to intervene in private funds, and it shows how the optimal selection of interventions likely depends on these underlying causes. Second, it calls on the SEC, industry participants, and scholars to work together more deliberately to study when private ordering does (and does not) fall short of efficiency in private funds and why. As private markets continue to grow and evolve, the policy dialogue over securities regulation in private markets is likely just getting started, and these principles provide building blocks to help guide the future of securities law policy in private funds and across the spectrum of private markets.

Suggested Citation

Clayton, William W., High-End Securities Regulation: Reflections on the SEC's 2022-23 Private Funds Rulemaking (February 7, 2024). 14 Harvard Business Law Review 71 (2024), BYU Law Research Paper No. 22-22, Available at SSRN: https://ssrn.com/abstract=4204514 or http://dx.doi.org/10.2139/ssrn.4204514

William W. Clayton (Contact Author)

Brigham Young University - J. Reuben Clark Law School ( email )

430 JRCB
Brigham Young University
Provo, UT 84602
United States

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